Final answer:
The potential problems with participative budgeting include challenges in accurately estimating potential GDP, decisions on influencing aggregate demand, and legislative lag time which delays budget implementation and effectiveness.
Step-by-step explanation:
Three potential problems of participative budgeting could include difficulties in estimating potential GDP, making decisions on whether to influence aggregate demand through tax changes or government spending adjustments, and managing the lag time associated with legislative actions by Congress and the President.
Estimating potential GDP accurately is crucial for budget planning, but can be quite complex due to the numerous variables involved. Decisions on influencing aggregate demand are significant as they determine the fiscal policy direction. Lastly, the lag time in passing legislation can delay the implementation of the budget, thus affecting its effectiveness.
Other issues that might arise from participative budgeting include increased transaction and conformity costs associated with group decision-making. These costs refer to the effort required to reach a decision and the compromise on individual preferences that group decisions entail.